Economic Development Analysis Research Paper

Introduction

Interrelation of politics and economics is inevitable. Better development of political structure of a country results in more effective functioning of state economy and vice versa. Ineffective government policy, inability to provide stability in the country damages economy, which certainly needs a sound background for its development. Nowadays two main ways of economic development are known in the world. They are planned economy represented by the example of former Soviet Union and countries that have been a part of it, and market economy by the example of modern developed countries, such as the USA, Great Britain, France, Germany and others. The conflict between communism, which stated that all people should be equal, and capitalism, which strives for maximum profitability, is still a subject of many heated debates. However, history proved inconsistence of communism, which resulted in the collapse of one of the larges countries in the world – the Soviet Union. However, not only Soviet Union was a communistic state, other countries, including the ones that will be discussed in this study were also communistic; and only China managed to preserve communism for a rather long period of time. Both Albania and Czechoslovakia, which does not exist any more, were communistic states, thus, their economic developed is somewhat different than of those countries, which have never been communistic. So, why does economy depend on politics? First of all economy can develop only when political situation is stable, otherwise, any economic ventures will be too risky even to start. Political regime preconditions economic developed, because under communism economy is planned, and under democracy economy is based on the laws of free market. Of course government continues to influence its development; however, this influence is only effective when economy needs it, in all other cases it can function by itself.

Current study was designed to compare economic development of Albania and Czechoslovakia during transition from communism to democracy. The main goal of this paper is to speak about peculiarities of economic development in both countries, and impact that communism and democracy had on economy of Albania and Czechoslovakia.

1. Brief Historic and Economic Overview of the Two Countries

In order to begin any economic analysis it is first of all necessary to analyze historic background of a country economy of which is going to be analyzed. This is important as it gives a better understanding of the patterns of development and allows predicting further development.

Albania is situated in South-eastern Europe and borders on Greece, Serbia and Montenegro. The area of the country is 28,748 sq km, and the population is 3,581,655 people. “About 90% of the population is ethnic Albanian, less than 10% is Greek, and there are scattered Vlach, Bulgar, Serb, and Gypsy minorities” [5]. A lot of ethnic Albanians inhabit a region in Serbia, known as Kosovo, which provoked a large ethnic conflict between Albanians and Serbs, with the latter trying to expel Albanians out of their homes in Kosovo. Major religions in Albania are Islam (70 per cent of population are Muslim), Christianity (20 per cent are Greek Orthodox) and Catholicism (about 10 per cent of Albanians are Roman Catholic). During the years of communism, Albania was considered to be an atheist country as the majority of churches and mosques were closed. The first successful attempt at becoming independent happened in Albania in 1912 after the First Balkan War; however, under the Second Balkan War in 1913 it again became dependent, being occupied by the Serbs. After the World War II Albania became a communistic state following the example of Soviet Union, close relationship with which it maintained during that period of time. Things changed in 1960s when “Albania’s disapproval of de-Stalinization and of Soviet-Yugoslav rapprochement led in 1961 to a break between Moscow and Tirana” [5]. After breaking the relationship with the USSR, Albania became an ally of China, however, “the alliance with China lasted until 1977 when Hoxha broke ties in protest of China’s liberalization and the U.S.-China rapprochement” [5]. In 1990s Albania started to re-establish its relationship with other countries, and “the government began to allow tourism and promote foreign trade, and permitted the formation of the opposition Democratic Party” [5]. The elections of 1992 in Albania were won by the Democrats, which marked the beginning of democracy in the country. Elections of 1992 have influenced the relationship of Albania with many foreign countries, and in 1994 Albania “joined the NATO Partnership for Peace plan, and in 1995, it was admitted to the Council of Europe” [5]. Nowadays, Albania is a democratic republic headed by the president, who is elected for a five-year term. It has “a unicameral assembly, to which deputies are elected by universal suffrage for four-year terms” [5]. Also, Albania has a multiparty system with Agrarian Environmentalist Party or PAA as a leading one.

Czechoslovakia’s history is not as long as Albania’s history is, as it only appeared on the world arena in 1918, when Slovakia and Czech proclaimed their official union in Prague. However, the life of the union did not go smooth, because both “Czechs and Slovaks had separate histories and greatly differing religious, cultural, and social traditions” [10]. In 1920 a new constitution was adopted in Czechoslovakia, “which set up a highly centralized unitary state, failed to take into account the important problem of national minorities” [10]. Internal problems of Czechoslovakia were even worsen by the external problems, when the Second World War started. After the end World War II the process of engaging Czechoslovakia into the communist system was at its highest speed. Thus, “during the summer of 1947, the Communists began a campaign of political agitation and intrigue that gave them complete control of the government in Feb., 1948”[10]. This process resulted in Czechoslovakia’s transformation into a communist state, where people had not political, cultural or religious freedoms, and had no right to speak up against the existing regime and government. All power in the country belonged to the Communist Party of Czechoslovakia. In 1968 the Soviet Union and its allies fearing that they might lose their supremacy invaded the country. Such policy was accompanied by “mass arrests, union purges, and religious persecution” [10]. By the end of 1980s it became clear that the end of communism in Czechoslovakia is very close. In 1989 political stability in the country was disturbed by mass demonstration against the existing regime. At first attempts to suppress the demonstration were taken, however, “as democratization swept through Eastern Europe, the Communist party leadership resigned in November” [10]. Being previously under state control economy of Czechoslovakia began its transition to free market. The events that happened in the country in 1989-1991 were called the “Velvet Revolution”, which successfully completed with the departure of the last Soviet troops in May, 1991, and a free parliamentary election in June, 1992” [10]. In 1993 Czechoslovakia stopped its existence as a result of decision between its two parts Czech Republic and Slovak Republic. Nowadays, both Czech Republic and Slovakia exist and develop independently.

Being one of the most prosperous and politically stable post-Communist countries, Czech Republic was able to join NATO and the European Union. Economy of this country, with GDP per capita equal to $20,000, is rather prosperous as compared to other post-Communist states. Slovakia also demonstrated a good pattern of transition from planned economy to market economy. Almost all state industries are now privatized in Slovakia, where economic and political situation are rather stable. Slovakia as well Czech Republic has also joined the EU and NATO by now. However, GDP per capita in Slovakia is somewhat lower than in Czech and is equal to $16,300.

In contrast to Slovakia and Czech Republic Albania is one of the poorest post-Communist countries, which has “lowest standard of living in Europe” [5]. Its attempts to move quickly to market economy did not succeed, and as compared to Slovakia and Czech, Albania has the lowest GDP per capita, which is equal to $5,300. The majority of population (approximately 60 per cent) in Albania is working in the field of agriculture, which unfortunately does not bring much profit to the country.

As it can be seen from the information provided above, Albania and former Czechoslovakia went different ways after freeing from the supremacy of the Communist Party and becoming democratic. The differences in approaches can be seen in the success of failing to apply market principles to economy, which previously was centrally planned. Obviously, both Czech and Slovakia after the decline of Czechoslovakia became rather prosperous states, which allowed them to join the most powerful international structures of the world – NATO and the European Union. However, the transition from communism to democracy was difficult and required hard work from all post-Soviet countries, including Albania, Czech Republic and Slovakia. It required not only reconstruction of political and economical systems, but also changing of people’s views on state, government as in a democratic state people usually get more freedoms, including the right to think and say what they think about the existing government, which was forbidden in the Soviet Union and other Communist states.

2. Economy of Albania and Czechoslovakia under Communism and During the Period of Transition to Democracy

Centrally planned economy means not only telling the producers what to produce and when, but also how to produce it, from whom companies should buy raw materials and to whom sell ready-made goods. Under these circumstances all enterprises are state and they don’t have any right to develop on their own, only under government’s control. On one hand it is totally negative, as it denies all basic principles of market economy, while on the other hand it is good for those countries, which are really unable to develop on their own. This is how it was with Albania. When communism started to spread all over Europe it became clear that Albania would not be able to survive without joining one of the communistic states. In order to receive financial and political assistance and strengthen military security of the country, government decided to enter the world of communism. At first, Albania allied with Yugoslavia, then the Soviet Union (in 1948) and finally with China (in 1961). Economic benefit of Albania after concluding these successive alliances was obvious. Albania received access to modern technology and was able to “build the foundations of a modern industry and to introduce mechanization into agriculture” [6]. Exactly during this period of time Albanian population was able to enjoy at least somewhat higher standard of living than before the communism. It made some advances in country’s industrialization, in improving its agriculture, education, culture and other important spheres of life. However, negative impact on culture was quite tangible during the communist period in the history of Albania, as the existing regime forbade the people to practice their religion, and as result of this policy the majority of mosques and churches have been closed. Economic crisis started to prevail in economic life of Albania with the victory of Democrats, who aimed at establishing market economy in the country at a rather quick pace.

Speaking about Czechoslovakia, its economy of that period is also characterized by the full control from the side of the government. However, the standard of living in Czechoslovakia was significantly higher than in Albania during the communism. Czechoslovakia was able to establish strategic economic links with other communistic states, which largely benefited its economy. Social sphere of Czechoslovakia was also well-developed under communism, and was characterized by good quality education and development of culture. However, people of Czechoslovakia were also unable to practice their religion, as all communistic states were considered atheist.

All economists agree that the period of transition from one regime to another one is always difficult, which usually results in crises in both political and economic spheres of life. The life of Albania at the beginning of 1990s is characterised by a rather long period of political, economic and social instability, which has resulted in the fall of several governments. Government’s efforts to establish free-market economy led to dramatic changes in the country. In 1990, GDP in Albania averaged to L 16,234 million, and GDP per capita was US$450 [7]. As compared to previous years, it was 13.1 per cent decrease. At the beginning of 1990s, labour force of Albania constituted 1,567,000 (1990), out of which 52 per cent worked in agriculture and only 22.9 per cent were employed in industry [7].

As for Czechoslovakia, its economy was characterised by GDP estimated US$135.6 billion in 1985, and per capita GNP US$8,700 [8]. Before the fall of communism and the separation of Slovakia and Czech, the economies of both countries were growing. Transition from centrally planned economy to market economy was more successful in both Slovakia and Czech Republic as compared to Albania, which can be seen from the modern economic and political setting of the three countries.

3. Modern Economy of Albania and Czechoslovakia in the Era of Democracy

According to the author of the article “Albania on Slow Road to Development” Joshua Kucera, after ten years being a democratic state Albania “remains the region’s laggard: the poorest, most unstable, most lawless country in the region” [8]. The majority of people in Albania are still employed in agriculture (58 per cent), as Albania was not able to preserve that success in industrial development that it reached while being a part of a communist world. Only 19 per cent of the total labour force is employed in industry, while 23 per cent is in services sector. By now almost all state property has been privatized in Albania, including housing, however, “by European standards, accommodation in Albania is rather primitive” [1]. Everywhere the remains of Stalinist economy can be seen. Almost nothing has been renovated since the collapse of communism. Money is directed into entertainment (cinemas, cafes, restaurants) in Albania rather than into the development of industries. Albania’s economy is stimulated by foreign assistance coming from Greece and Italy, which helps to compensate constantly growing trade deficit. Being the most important field of economy in Albania, agriculture is in great need of modernizing, as all the equipment and machinery that is being used is totally out of date. Generally speaking, economic and especially business environment of Albania is very poor, which results in very little amount of foreign investment. Rail roads and especially roads are in a very bad condition, which harms not only transport system of Albania, but also prevents its economy from further growth. Official unemployment rate is nearly 14 per cent; however, in reality it may be equal to almost 30 per cent.

Major products of agriculture in Albania include wheat, potatoes, corn, grapes, fruits and vegetables, meat and dairy product, while major industrial goods are textiles and clothing, chemical products, metals, oil and others. Ethnic conflicts in Kosovo, which is Serbian province but is mainly inhabited by Albanians, had a large negative impact on economic development of Albania, which “provided shelters to an estimated 20,000 Kosovo Albanians who fled the war of ethnic cleansing by the Serbs” [2]. It is sad to realise but poor conditions in Albania have resulted in brain drain, especially of college graduates, to better developed countries. Albania is still a home for great variety of criminal and fraudulent structures, as its location has made it “one of the lucrative illegal trade routes to Western Europe, including the smuggling of Albanian economic refugees from the poverty-stricken and crime-ridden country” [1].

After the fall of Czechoslovakia in 1992, Czech Republic started to look for its own way of development, and it did find it, because exactly Czech Republic is considered to be the most prosperous former communist state. Czech Republic demonstrated successful implementation of various economic and political reforms, which resulted in economic success measured by statistical evidence and political stability. Czech made envious a lot of neighbouring country, such Poland and Hungary, which did not reach such pace of development after being communistic. For example, in 1995 statistical evidence proves that unemployment in Czech Republic was “below 5 per cent, inflation under 10 per cent for two consecutive years, double digit growth in the industrial sector, and a 1995 budget surplus of more than two hundred million pounds” [4]. Political and economic stability attracted a lot of foreign investors, who did not have to be fearful of losing their money as a result of some unpredictable events. During the period of 2000-20005 economy of Czech was widely supported by exports to Germany and increase in foreign and domestic investment. As it is stated on the official website of “CIA Fact Book”: Czech’s “current account deficits of around 5% of GDP are beginning to decline as demand for Czech products in the European Union increases”[9]. By means of monetary policy, Czech’s government is keeping the level of inflation under control. The real growth rate of GDP in 2005 was about 6.1%, while the rate of unemployment was 8.9% in 2005 [9]. The majority of population is employed in services sector of economy (58 per cent), 38 per cent work in industry, and only 4 per cent work in agriculture [9]. The government of Czech does not stop on the attained goals, however, “more difficult pension and healthcare reforms will have to wait until after the next elections” [9].

As well as Czech, Slovakia was also successful at its economic and political development after the fall Czechoslovakia, however, its economic development is not as high as Czech’s is. The process of privatization is almost complete there; economic and political spheres are stabilized. Government of Slovakia has achieved significant success at the sphere of investment, as it “helped facilitate a foreign investment boom with business-friendly policies, such as labour market liberalization and a 19% flat tax” [11]. Much of the foreign investment was directed to automotive industries of economy. The rate of unemployment dropped from 15 per cent in 2003-2004 to 11.4 per cent in 2005 [11], however, it still remains quite a problem for Slovakia’s economy. The real growth of GDP is similar to Czech’s growth of GDP and equalled 6.1% in 2005 [11]. The largest part of the labour force of Slovakia is occupied in services (55.9 per cent), while only 5.8 of it works in agriculture, and 29.3 per cent is in industry [11].

Conclusion

Having spoken about economic development of Albania and former Czechoslovakia it is necessary to make a conclusion. Statistical evidence and standard of living in Albania and former Czechoslovakia show, that the latter was able to develop much better than Albania. During the years of communism, former Czechoslovakia possessed a very strong industrial sector of economy represented by highly developed automobile and locomotive production. With the collapse of communism, all these industries remained on the territory of Czech Republic, which has shown the fastest and the most successful patterns of economic development. Albania never had a developed industrial sector of economy, as the majority of its people were and continue to be employed in agriculture. In contrast to Albania, governments of Slovakia and Czech Republic developed their industry and services sector of economy, stabilized political and economic life, which helped to attract foreign investors and boost economic activity. Albanian government failed to stabilize political and therefore economic spheres, as the real power in the country belongs to various criminal structures and government is unable to control it. For this reason, it is possible to state that economic situation of Albania was better during communism, when the government was controlling the whole reproduction process, while in Slovakia and Czech Repiblic economy started to develop and prosper when the two countries received independence and were converted into countries with market economy.

Bibliography
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